Defining the rates for the Selective Tax will require care to avoid high taxation of products considered harmful to health or the environment from encouraging the consumption of pirated items, said the Deputy Attorney General of the National Treasury, Fabrício da Soller, last Monday (September 14).
According to him, the government and Congress will need to consider the consumers' reaction to the price increases caused by the new tax. An excessive tax rate could reduce consumption of the legal product, but also shift some of the demand to the illegal market.
“We have to be very careful […] to properly calibrate these rates so as not to fall into illegality and the consumption of pirated products,” he stated during a seminar on the Selective Tax promoted by the Getulio Vargas Foundation (FGV).
The Selective Tax was created by the tax reform to apply to goods and services considered harmful to health or the environment. The list includes vehicles, boats, aircraft, tobacco products, alcoholic and sugary drinks, and mineral resources, as well as bets.
Soller stated that the reaction to the taxation will depend on the elasticity of demand for each product—that is, how much consumption decreases in the face of a price increase. "The elasticity of demand will vary depending on the product or service," he said.
He also said that there are many food products that are harmful to health, but they were not targeted by the tax due to their complexity and because they could potentially affect the poorest people.
“"Perhaps the most obvious absence is that of the food industry: there are a number of products that are harmful to health, but bringing them here would create enormous complexity in their classification, in addition to the fact that these are products consumed mainly by the lower-income population, which would further aggravate the taxation of these people," he stated.
The deputy attorney general said that no one expects the Selective Tax to lead to the closure of automobile factories, beverage plants, or mining companies. In his view, these products will continue to be consumed, even if the taxation alters consumer behavior.
The concern about the illegal market arises in a context where the Selective Tax will also have a significant revenue-raising function. According to Da Soller, the 2027 Budget Bill projects R$42 billion in revenue from the tax.
The deputy attorney general defended the revenue derived from the tax, including its use to fund public policies, and stated that the revenue-raising and regulatory functions can coexist in the new design.
“"Even though it's not a tax earmarked [for public health or environmental spending], ultimately it's all the same: the public resources that will be allocated to a specific public policy are other public resources that are left over for public health and environmental policies," he said.
“"Always remembering—and I, as a Federal Attorney, have a duty to always remember this—that rights are only protected or promoted with public resources. If we, as a society, do not have the capacity to generate public resources, we will not protect or promote all those rights enshrined in the Constitution," he stated.
What is the tax rate?
According to the Ministry of Finance, there is currently no preliminary estimate of the rate. On Monday (September 14th), the Federal Revenue Service sent the calculation model to the Federal Court of Accounts (TCU), which will be used as the basis for defining the CBS reference rate.
Subsequently, the TCU (Federal Court of Accounts) will forward the calculations to the Federal Senate by October 30th. It will be up to the Senate to set the reference rate and the reduction factor, according to the deadlines established by law.
“"The Federal Revenue Service has already been working together with the TCU's technicians in building this model, based on a methodology approved by the Court in 2025," says the Treasury.
Source: JOTA